* State of the Union speech to focus on economy
* Wants "smarter," not bigger, government
* Let free enterprise work, Republican Rubio urges
* Obama to announce 34,000 troops to return from Afghanistan
President Barack Obama will challenge a divided Congress on Tuesday to back his proposals to create jobs for the middle class in a State of the Union speech that will lay out an ambitious second-term agenda.
Obama enters the well of the House of Representatives for a 9 p.m. EST (0200 GMT on Wednesday) address to a joint session of Congress at a time when he is again locked in a bitter battle with Republicans over taxes and spending, and this tussle will cast a heavy shadow over his appearance.
Seeking to use momentum from his re-election victory, the Democratic president will urge Congress to increase taxes on the wealthy, overhaul U.S. immigration laws and enact tighter gun controls. He has about a year to get his legislative priorities enacted before Americans shift attention to 2014 congressional elections.
Obama, who won re-election last November with a vow to favor middle-class voters over the wealthy, will seek to make good on his promises to them in what his critics call a liberal agenda.
"It is our unfinished task to make sure that this government works on behalf of the many, and not just the few," he will say, according to speech excerpts released by the White House.
While heavily focused on domestic policies, Obama's speech will have some crucial foreign policy elements.
He is to outline steps to unwind U.S. involvement in the unpopular 11-year-old Afghanistan war and plans to announce that 34,000 U.S. troops of the 66,000 troops still there will return by early 2014.
Aides said he did not plan to give details of what sort of residual American presence might remain in Afghanistan after 2014, when the U.S. withdrawal is supposed to be complete.
Obama's speech comes a day after North Korea conducted its third underground test of a nuclear device in response to what it called U.S. hostility. Obama has called the atomic explosion a "provocative act and is expected to address Pyongyang's action in his speech.
He is also expected to announce the launch of U.S.-European Union talks on a transatlantic free trade agreement.
WORRIES ABOUT HIGH UNEMPLOYMENT
But the major portion of Obama's speech marks a renewed focus on the tepid U.S. economy as he tries to satisfy Americans' concerns about a stubbornly high unemployment rate of 7.9 percent that persists despite a soaring stock market.
The White House has signaled that Obama will urge investment in infrastructure, manufacturing, clean energy and education. Republicans, who control the House and represent a vocal minority in the Senate, oppose increased government spending and want to tame debt and deficits with spending cuts.
Obama will say his additional proposals are fully paid for and consistent with a budget framework both parties agreed to 18 months ago that set spending caps and would reduce the deficit spending by $2 trillion.
He would like to raise $800 billion in revenue by closing tax loopholes enjoyed mostly by the wealthy. Republicans who just agreed to higher taxes on wealthier Americans to avert a fiscal crisis at the end of 2012 are opposed.
"Let me repeat - nothing I'm proposing tonight should increase our deficit by a single dime. It's not a bigger government we need, but a smarter government that sets priorities and invests in broad-based growth," Obama will say.
He will say his actions are needed to help restore a middle class battered by a deep recession and flat income growth.
"It is our unfinished task to make sure that this government works on behalf of the many, and not just the few; that it encourages free enterprise, rewards individual initiative, and opens the doors of opportunity to every child across this great nation of ours," he will say.
Florida Senator Marco Rubio, a rising Republican star who is the son of Cuban immigrants, will deliver his party's response to Obama's speech, a major entry onto the national stage for a potential 2016 presidential candidate.
He will contrast Obama's speech by saying tax increases will not produce needed jobs nor reduce the deficit, and that government spending needs to be reined in.
Rubio is to make an impassioned plea to let the free enterprise system work.
"Economic growth is the best way to help the middle class. Unfortunately, our economy actually shrank during the last three months of 2012. But if we can get the economy to grow at just 4 percent a year, it would create millions of middle-class jobs," he will say, according to speech excerpts.
Analysts say Obama has a narrow window before Washington turns its attention to the 2014 mid-term elections, which could sweep more Republicans into Congress and accelerate the subsequent "lame duck" status that defines presidents who are not running for office again.
"He basically has a year for major legislative accomplishments because after the first year you get into the mid-term elections, which will partially be a referendum on his presidency," said Michele Swers, an associate professor of American government at Georgetown University in Washington.